Sales tax — TDS on works contract — At flat rate — On total contract value — Without any mechanism to determine taxable turnover, etc. — Constitutional validity — Invalid — Section 3AA of the Tripura Sales Tax Act, 1976.

Sales tax — TDS on works contract — At flat rate — On total contract value — Without any mechanism to determine taxable turnover, etc. — Constitutional validity — Invalid — Section 3AA of the Tripura Sales Tax Act, 1976.

The dealer entered into works contract for digging and development of tube-well for State PWD of the Tripura Government. Under the contract, pipes were supplied free of cost by the Department and some little materials were supplied by the dealer. The State PWD deducted sales tax from payment of bills to the dealer/contractor at flat rate as provided in section 3A of the Tripura Sales Tax Act, 1976. The dealer filed writ petition before the Gauhati High Court challenging constitutional validity of provisions of section 3A of the Tripura Sales Tax Act, 1976 providing for levy of sales tax as well as provisions of TDS at flat rate u/s.3AA of the act. The High Court following various decisions of SC and other High Courts upheld constitutional validity of section 3A of the act providing levy of tax at different rate of tax on sale of goods involved in execution of works contract but TDS provisions were held as invalid.

Held:

 (i) Under the contract, the dealer was to supply necessary fittings and some other material however little they may be, the contract is not a service contract, but works contract involving sale of those goods and liable for sales tax on corresponding turnover of sales.

(ii) No tax can be imposed and recovered in respect of sale arising out of works contract as per section 3A inasmuch as tax is leviable on turnover of sales, but the manner of computation of turnover has not been provided in respect of works contract in the Act making thereby assessment and computation of tax inapplicable in respect of works contract.

(iii) Section 3AA of the act and Rule 3A(1) of the rules are bad in law inasmuch as it permits deduction of tax at flat rate.